Electric mobility as an anchor for productive uses of renewable energy: The case of E-Safiri, a Kenyan based start-up

                                                 

The impact of rural electrification programs can often be multiplied through the promotion of productive use of on-grid and off-grid electricity beyond basic domestic use. Most countries place a high priority on electrification and recognize the many benefits it brings. These benefits include improved lighting; higher levels of education for children; increased productivity in business and agriculture; improved health through reduced use of kerosene lamps; increased access to entertainment and information through radio, television and computers; and increased social activity and safety through public lighting (IEG 2008). Today, electrification is often combined with investments in other areas, such as roads, water supply, education, training, technical assistance and access to credit. 

 

This case study focuses on how promoting productive uses can increase the financial viability of climate investments in small-scale power generation and distribution, particularly in rural areas. It illustrates the significant benefits which can accrue from using off-grid electricity for productive purposes, with charging infrastructure for electric motorcycles and tuk-tuks as anchor loads and a sustainable mover beyond basic household electricity use in Kenya. It examines how the adoption of electric mobility can increase micro, small and medium enterprise productivity. "Any use of electricity that generates income for the user is a productive use of electricity", NRECA 2016.Kenya is a vibrant hub for more than 100 companies that sell solar-powered appliances that are used to create value and generate income in all sectors of the national economy. Productive Uses of Energy (PUE) is an umbrella term for a variety of ways in which electricity from off-grid solar photovoltaic (PV) systems is used to power electrical appliances that assist in the operation of a business or income-generating activity.

Some Kenyan companies have accessed impact debt and early-stage equity, but more is needed, including for non-PAYGo and component-based solar manufacturers and last-mile distributors. Climate finance may be available for companies (or other stakeholders) that reduce carbon emissions, for example by replacing fuel with solar power or irrigating with soil-conserving solar drip technology. 

There is a big gap in consumer finance for mid-scale, component-based PUE systems, and most customers will pay cash up front. Enterprising fintech lenders may be able to bypass traditional microfinance institutions to reach these customers, but there is still a need for dedicated asset finance for the sector. 

Improved business practices as a result of the COVID-19 pandemic are strengthening the sophistication and evidence-based decision-making of the companies in a way that will increase their attractiveness to investors. This includes an unprecedented level of digitalisation in the sector. As business models evolve, there are promising opportunities within: 

·      Expansion through non-solar channels. Although some last-mile distributors sell through both solar and agricultural equipment supply chains, many do not. 

·      Service or rental business models where customers rent rather than buy PUE equipment, or purchase solar service only. These address the high cost of equipment and can benefit from the global experience of the sharing or rental economy.

·      Horizontal consolidation, where companies solve more than one constraint in the value chain of their customers, for example by selling cold storage and refrigerated transport to farmers.

The environment is largely conducive to PUE market(s) development, with technical standards, vibrant mobile money and PAY-Go sectors, mini-grid regulations to guide developers, and a longstanding business-friendly approach that reassures foreign and local investors. The PUE space in Kenya is primarily impacted by the following energy sector regulations:

 

·      Quality or minimum performance standards for both solar panels and appliances

·      Certification requirements for solar technicians and installers

·      Rules for setting tariffs for mini-grids

·      Taxation of imported solar equipment

 

There are no national standards for the design of (component-based) systems for productive use, nor for direct current appliances. This is not a priority at present. There are efficiency standards (minimum energy performance) for a number of appliances. The main standardisation body, the Kenya Bureau of Standards (KEBS), has also received requests for the development of standards for solar refrigerators (which, as their components are not new, will be self-regulated) and solar thermal dryers. There are 21 standards for the electric mobility sector. Fiscal obligations on PUE appliances consist of import duty, which is set at the regional level by the East African Community (EAC) Customs Union. Value added tax (VAT) is set annually by the Kenyan Treasury. In the past, it has been common practice in the solar sector for the VAT status to reflect the import duty status, although this is not always the case (e.g. it appears that an electric mill is currently exempt from import duty but not from VAT), ENDEV/SNV, 2021.

 

In order to further incentivise investment in the country's e-mobility sector, the Kenyan government is reviewing the legal and policy framework. A task force has been set up, with the participation of investors and the private sector, with the aim of developing appropriate regulations that will be attractive to investment in the sector. Some initiatives, such as reduced e-mobility tariff, VAT exemption for charging infrastructure and battery swapping, and reduced import duty for electric vehicles.

 

E-Safiri Charging Limited is a Kenya-headquartered company dedicated to developing charging  infrastructure that harnesses the country's abundant renewable energy for electromobility. The company has developed solar-powered charging hubs to charge the batteries of electric tuk-tuks and motorcycles. The residual energy from these hubs will be used to provide a cold storage service for the fish vendors and for other agricultural products creating a business model that attracts investment in PUE and sustainable mobility. The company is a woman-owned business and 67% of senior management and decision-making positions are held by women.

Through a partnership with stakeholders in the electric mobility sector, E-Safiri aims to make an impact on the electric vehicle ecosystem in the following key areas: 

• Using the PAYGo and Mobility as a service model to bring EVs to rural communities.
• Use of solar energy for powering/charging EVs, with extra energy for other productive energy uses (solar kiosks, solar refrigeration/cooling, solar phone charging, community/street safety lighting, etc.).
• Involvement of women in the rural economy and in the adoption/revolution of EVs - (as drivers, for transport of products, as charging partners).
• Building the capacity of organised groups of women and young people in rural communities.

In order to achieve a holistic PUE ecosystem to increase the utilisation of the energy from the solar PV charging hub, a number of key partnerships have been put in place. Implementation partners, EV assembly partners, transport policy experts and cold storage value chain are the first tier of partnerships. The second tier is with local county government. The third tier is partnerships with local community organisations. These are women's groups, youth groups and boda boda rider associations. The third tier involves capacity building and training of the groups to provide the necessary technical capacity to operate and maintain the system and to continue the project beyond the scope. These three levels of partnership are fundamental to project implementation and proof of concept for attracting private investment.

There is a lack of targeted PUE grant, equity and debt funding to support companies from the R&D phase to market introduction. Grant funding is often ear- marked for R&D projects or for activities supporting market development, leaving a gap between R&D and market introduction. Investors are hesitant to provide equity or debt funding due to the lack of proven business cases and the complexity of the market for PUE products. 

Better access to low-cost capital is critical to improve the affordability of clean energy transitions. Putting the world on a path to achieve net zero emissions by 2050 requires a substantial increase of capital-intensive clean energy assets such as wind, solar PV, electric vehicles and hydrogen electrolysers  which have relatively high upfront investment costs and lower operating and fuel expenditures over time. 

 IEA Net Zero Emissions by 2050 Scenario (NZE), estimates that around 70% of clean energy investment over the next decade will need to be carried out by private developers, consumers and financiers. Rapidly increasing investment in clean technologies also depends on enhancing access to low-cost financing, particularly in emerging and developing economies. While clean energy transitions rely on much higher levels of both equity and debt, capital structures also hinge on the widespread mobilisation of low-cost debt. IEA, 2021.

The following is an analysis on what approaches can be taken beyond the R&D phase to attract investment for PUE projects:

•       Address availability and appropriateness of PUE products by better linkages with existing R&D programmes, more thorough market assess- ments at the start of projects and/or budget allocated for R&D and product development within the project design.

•       Focus on developing and promoting proven business cases and supplier and/or end-users to increase the effectiveness of market development projects, while R&D and research programmes can support the develop- ment of these business cases. 

•       To address end-user affordability, support manufacturers and distributors to design and adopt suitable payment models through the support of financial institutions, specialised funds or lease-to-own and PAYGO models. 

•        Develop distribution models by motivating existing last-mile entrepreneurs to adopt PUE products, for example through training on PUE technologies, financial incentives to cover operational expenditures like stock financing, and marketing and awareness-raising. 

•       Unlock private sector funding through the provision of staged grant funding to support early-stage PUE products and companies from the R&D phase to market introduction and scale-up. This will allow for commercial investment to be leveraged once the product and business model is proven. 

•       Promote PUE by awareness-raising through supporting above-the-line national campaigns (to a wider audience) as well as below-the-line grassroots marketing campaigns (to specific target groups) conducted by last-mile entrepreneurs. 

There is rapid growth underway in spending on some emerging technologies, notably batteries, low emissions hydrogen, and carbon capture utilisation and storage. Investment in battery energy storage is expected to more than double to reach almost $20 billion in 2022. However, despite some bright spots, clean energy spending in emerging and developing economies (excluding China) remains stuck at 2015 levels, with no increase since the Paris Agreement was reached. Public funds to support sustainable recovery are scarce, policy frameworks are often weak, economic clouds are gathering, and borrowing costs are rising. All of this undercuts the economic attractiveness of capital-intensive clean technologies. Much more needs to be done, including by international development institutions, to boost these investment levels and bridge widening regional divergences in the pace of energy transition investment.